Welcome back to the latest episode of The Future of Automotive on CBT News, where we put recent automotive and mobility news into the context of the broader themes impacting the industry.
I’m Steve Greenfield from Automotive Ventures, and I’m glad that you could join us.
This week I’d like to take the opportunity to discuss the increasing cost of vehicle insurance.
Last year, we witnessed all 10 of the top auto insurers in the U.S. raise rates by double digits.
U.S. auto insurers had a tough time adjusting in 2023 as rate increases failed to keep up with jumps in claim frequency and severity. A report from S&P Global observed that increases in severe auto crashes have resulted in a rise in litigated claims, and severe weather and a surge in vehicle thefts resulted in higher losses in comprehensive coverage.
And it’s worth calling out EVs, when it comes to their cost to repair.
The average repair bill for a traditional vehicle today runs $4,437, according to CCC Intelligent Solutions. For an electric vehicle, the average fix is 49% higher, or $6,618, thanks to their added tech content and the special handling required to work with their electric powertrains.
Battery-powered vehicles face longer wait times and bigger repair bills than gasoline-engine vehicles after a crash. Higher repair costs, more time spent in workshops and a lack of mechanics trained to fix EV batteries contribute to the difference.
For EVs, the increased costs following collisions contrast with the maintenance savings that dealers and automakers promote when trying to get buyers to switch to electric cars and trucks. In addition to not needing gas, EVs tend to require less upkeep. Not needing to do regular chores like oil changes, engine tune-ups or replacement of timing belts means that electric-vehicle owners spend half as much maintaining their vehicles as their gasoline-owning counterparts, according to Consumer Reports.
Higher repair costs are also helping to drive up insurance premiums for electric owners, who pay on average $357 a month for coverage compared with $248 for gas vehicle owners.
Insurers—who watched the average collision insurance claim soar 64% from 2018 to 2022, to $5,992, have moved to offset the higher repair costs by aggressively hiking drivers’ premiums.
But don’t feel too badly for the insurance companies, who have been able to adapt quite quickly. The pain for home- and auto-insurance customers is quickly becoming investors’ gain. Insurance giants’ shares and profits are hitting records, thanks in part to steep rate hikes.
Thematically, I worry that the increasing tech complexity of cars is going to continue to increase the cost of repair post collision.
Tesla is experimenting with 3D printed sand molds to cast auto underbodies that could substitute one part for 400 parts, lowing automotive development timelines by 50%.
But I wonder, if Tesla is successful with their 3D-Printing (or “Gigacasting”) aspirations, what downstream effects this will have on vehicle repairability and insurance premiums? Are we going to create cars that effectively cannot be repaired after even the most minor fender bender?
In amongst all of this, our roads are getting worse. In the U.S., about 44 million drivers reported damage to their vehicles from potholes in 2022, a massive 57% increase over 2021, according to AAA.
As we transition to EVs, there will be fewer tax dollars to allocate to road repairs.
For example, California’s budget for road repair and maintenance depends on the state’s motor fuel taxes, and that revenue is expected to plunge. Electric vehicles don’t use gasoline, so EV drivers don’t pay the gas tax.
A recent report from the California Legislative Analyst’s Office warns that loss of state fuel tax revenues could have dire consequences for the upkeep of roadways. Taxes on gasoline and diesel fuel now total about $14.2 billion a year in California. More than $4 billion annually could disappear by 2035, when the state’s ban on the sale of new fossil fuel cars takes full effect.
All of this to say that we need to be keeping a watchful eye on vehicle insurance affordability in general, but more specifically if we start to see a significant difference between the monthly insurance premium that will need to be paid for an EV versus for an internal combustion vehicle.
Companies to Watch
Every week we highlight interesting companies in the automotive technology space to keep an eye on. If you read my weekly Intel Report, we showcase a company to watch, and take the opportunity here to share that company with you.
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So that’s it for this week’s Future of Automotive segment.
If you’re an AutoTech entrepreneur working on a solution that helps car dealerships, we want to hear from you. We are actively investing out of our new DealerFund.
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Don’t forget to check out my book, The Future of Automotive Retail, which is available on Amazon.com. And keep an eye out for my new book, “The Future of Mobility”, which is almost done, and will be out early this year.
Thanks (as always) for your ongoing support and for tuning into CBT News for this week’s Future of Automotive segment. We’ll see you next week!